There is no certainty that a new business is going to make profits or that it is
even going to break even. However, an entrepreneur still needs to calculate costs
before setting up a new business.
The financial costs of the new business need to be included in the business proposal.
In fact, this is the section of the proposal that a business investor, especially
a bank, will be looking at most closely.
An entrepreneur needs to estimate if the new business can break even within a year
or two of being in operation. A break-even analysis shows the amount of revenue
that an entrepreneur will need to bring in to cover the expenses, before making
even a dime of profit.
Many experienced entrepreneurs use the break-even analysis as a primary screening
tool for new business ventures. In fact, for most of them the business proposal
is not complete till the estimates are completed.
To prepare the financial section of the business proposal, new business owners need
to be familiar with basic financial terms as well as the structure of business operations.
An entrepreneur needs to be aware of terms such as fixed costs, sales revenue and
average gross profit.
An entrepreneur who is able to show a break-even point for the new business shortly
after its opening stands a good chance of getting investments for the business.
The break-even forecast is a great screening tool that entrepreneurs use to estimate
the viability of a new business venture.
Before applying for capital resources for the business, an entrepreneur also needs
to analyze the performance of similar products in the market. The entrepreneur then
should be able to convince a business investor that there is space for another product
in the market and that the product shows promise of making profits.
Business proposals are the most important part of business plans. An entrepreneur
needs to be careful while developing the business proposal.